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CONSTRUCTION
BULLETIN #3-2006
HOW MUCH IS MY CONSTRUCTION LIEN WORTH?
Under the New Jersey
Construction Lien
Law, a contractor,
subcontractor or
supplier who has
entered into a
written contract may
have the ability to
file a construction
lien against the
property. This
applies only to
private projects. A
number of factors
will determine the
full extent of the
lien. Historically,
lien claimants have
looked to the amount
due to them under
their contract and
any written change
orders and inserted
that amount in the
lien claim. By
statute and under
recent case law,
that sum may not
represent the
ultimate lien
amount.
The statute (N.J.S.A.
2A: 44A-10) provides
some protection to
an owner who has
already paid monies
to the extent that
the lien amount of a
contractor or lower
level subcontractor
or supplier may not
exceed the then
outstanding balance
due from the owner
to the prime
contractor.
Accordingly, if the
owner has made
payments on the
prime contract which
reduced the balance
to $50,000.00 and a
lower level
subcontractor files
a lien for
$100,000.00, the
ultimate lien
liability of the
owner is at the
$50,000.00 level.
The statute also
makes reference to
analyzing the
intermediate
contract balances
which would include
the contract balance
left on a
subcontract between
the prime contractor
and its
subcontractor.
In the recently
decided Federal
action of Riggs
Distler & Co., Inc.
v. Valero Refining
Co. NJ, et al (D.N.J.
2005 WL 2897483),
the United States
District Court for
the District of New
Jersey clearly
announced that the
statutory provisions
pertaining to the
limitations on the
amount of a lien
claim will include
an analysis of all
contract balances
throughout the chain
of contracts and
subcontracts that
may exist on a
project. In Riggs
Distler, the court
found that the lien
fund (the total
amount available to
satisfy liens) will
be the lesser of the
amount claimed
properly by the lien
claimant, the amount
of the contract
balance between the
owner and the prime
contractor or the
amount of the
subcontract balance
between the prime
contractor and the
first tier
subcontractor.
Essentially,
therefore, if under
the above example,
there remains
$100,000.00 on the
owner/contractor
contract and the
lien amount due to a
sub-subcontractor is
also $100,000.00 but
the prime contractor
has paid its
subcontractor (who
had contracted with
the lien claimant)
all but $50,000.00
that intermediate
$50,000.00 contract
balance would create
the “cap” on the
amount that could be
liened.
Lower tier
subcontractors and
suppliers must
therefore remain
vigilant in pursuing
their lien rights as
soon as possible.
Even though a lien
claimant may have 90
days from its last
work to file a lien
and/or is continuing
on the project with
final work
notwithstanding
significant
outstanding balances
on prior invoices,
to wait until the
last minute to file
a lien may result in
significant
reductions in the
available funds
without the
sub-subcontractor
ever knowing it. The
thought process
whereby a
sub-subcontractor or
sub-supplier may
feel that since it
still has work to
complete, its lien
rights have been
protected can result
in significant
detrimental impact
to its lien rights.
CURETON CAPLAN, P.C.
James H. Landgraf,
Esq. |
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